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Tax letters: interest charges for some, says Revenue

HMRC coding notice
Image caption Some taxpayers can expect more letters and tax returns from HMRC in the coming months

HM Revenue & Customs (HMRC) says it cannot to tell how many taxpayers may pay interest on top of the unexpected tax calculations being sent out between now and Christmas.

About 1.4 million people are being asked to pay £2bn in unpaid income tax.

Those who owe more than £2,000 may be charged interest if they do not pay on time.

But an HMRC spokesman said "the vast bulk" would owe less than that amount.

Another 4.3 million people are in line for rebates for a total of £1.8bn, because they were overcharged by the authorities during the two tax years 2008-09 and 2009-10.

But interest has focused on those who will be asked to pay more income tax.

Those who owe less than £2,000 will be told the money will be recovered from their salaries via an alteration to their tax code.

They will pay more tax in the coming tax year (2011-12) to make up the shortfall.

In these cases, there is no question of interest being charged as well, and the calculation will be incorporated into their tax code automatically.

Deadlines

The situation is more complicated for those who owe more than £2,000.

They will be sent another letter as a follow-up to the recent calculation letters, but asking them to pay.

If they do not respond within eight weeks, they will be sent a formal self-assessment tax return to complete.

It is the issuing of that return which will trigger a countdown to the point at which interest may be chargeable.

People whose return was sent out before 31 October this year will have to pay by 31 January next year, or start paying interest at 3% a year on the outstanding sum.

Those whose returns are posted to them after 31 October will have three months to return it and a further seven days in which to make the payment. Only then will interest become due.

Agreement

Those who cannot pay the extra amount in time will have a choice.

They can pay off just part of the money, to bring their debt below £2,000, and ask for the rest to be collected via their PAYE code in 2011-12.

Or they can ask for extra time, perhaps spreading the payments over a year, or maybe more.

But even if they come to an agreement with HMRC to stagger these payments, this will not lift their obligation to pay interest.

This will still be chargeable, although on a gradually declining sum.

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